The opinion of the court was delivered by: SHARON E. GRUBIN
SHARON E. GRUBIN, United States Magistrate Judge:
This opinion resolves what I hope is the final leg of a lengthy and bitter litigation between plaintiffs, a cooperative apartment building at 305 East 24th Street in Manhattan and its individual directors ("Owners Corp."), and defendants, the company and its affiliates and principals who owned the building and sponsored its conversion to a cooperative in 1984. The action involves certain long-term leases that had been entered into by plaintiffs with defendants at the time of conversion, which plaintiffs sought to invalidate pursuant to, inter alia, the Condominium and Cooperative Abuse Relief Act of 1980, 15 U.S.C. §§ 3601-3616 (1982) ("Abuse Act"). On cross-motions for summary judgment, the Honorable Robert J. Ward of this court found that plaintiffs were entitled to relief under the Abuse Act on the leases covering the garage and laundry premises in the building although not on leases covering commercial management services. However, he found issues of material fact involved in additional claims made under the antitrust laws and under state law of unconscionability that required trial. Thereafter, the case was reassigned to the Honorable Kimba R. Wood who held a bench trial on the antitrust and unconscionability issues and rendered an opinion on May 30, 1989, finding in favor of defendants on both claims. That left the issue of what damages were to be awarded plaintiffs under the Abuse Act for defendants' having illegally refused to give up possession, control and income from the garage and laundry for the period October 9, 1985 (the date as of which Judge Ward found defendants' rights ceased) through October 31, 1987 (when defendants turned the premises over to plaintiffs). After briefing and oral argument by the parties as to the method by which plaintiffs' damages should be calculated, Judge Wood issued an order on September 18, 1990 referring the determination of the amounts of damages, prejudgment interest and attorneys' fees to a magistrate judge, and the matter was assigned to me. Thereafter, the parties conducted discovery and consented pursuant to 28 U.S.C. § 636(c) to have me render judgment in the case. Trial of the damages issues was held before me in December 1991 after which the parties submitted supplementary evidence and memoranda of law.
The damages with respect to the laundry premises are not in dispute. The parties have stipulated that plaintiffs are to be awarded $ 2,545 for 1985, $ 10,622 for 1986 and $ 3,973 for 1987, for a total of $ 17,140.
Initially, we need to deal with the basis on which damages for the garage premises should be calculated because, although that issue was presented to Judge Wood, the parties disagree over the meaning of her disposition of it. Judge Wood's order of September 18, 1990 directed defendants ("Garage Corp.") to pay "plaintiffs' actual damages for Garage Corps.' refusal to give up possession, control, and profits from its lease for that time period, calculated on the basis of the lease's fair market value. . . ." The dispute for purposes here arises because plaintiffs, once they took over the garage in November 1987, entered into a management agreement with a garage operator, Meyers Parking System, Inc., rather than a lease and contend that fair market value of the garage should be assessed on the basis of the garage's value under a management agreement. Defendants, however, contend that fair market value should be determined by the garage's value under a leasing arrangement and that Judge Wood decided the issue in that way. Both management agreements and leases are common forms of garage operation. Plaintiffs maintain that Judge Wood's use of the term "fair market value" is to be distinguished from "fair rental value" and that market value can be determined under a hypothetical management agreement as well as under a lease.
Judge Wood chose "the lease's fair market value" after having been presented by the parties with the following three possible methods of calculating damages: (1) profits plaintiffs would have earned if they had been running the garage during the applicable period, (2) "fair rental value" of the garage, and (3) profits earned by defendants during the period, as reported on their tax returns. Having combed the record, I believe that defendants are correct in that Judge Wood's ruling reflects her intent to award damages on the basis of the garage's fair rental value under a lease; i.e., she chose method 2. Plaintiffs' proposed method of valuation under a management agreement as set forth in the evidence of their expert, Gerald Prager, would, in essence, give them method 1's form of calculation which Judge Wood rejected in favor of method 2. What follows, therefore, is my evaluation of the evidence and my valuation of the damages on the basis of the garage's fair rental value.
I found Mr. Prager a wholly credible witness. I also found Susan Goldberg of Meyers Parking very credible and frank. While Dennis Cunning, defendants' expert, was a largely credible witness (although attempting a bit too hard to please his client), I do not believe his conclusion as to fair market valuation of a lease, i.e., that a garage operator during the relevant period would have paid rent in the nature of a 100% ratio to profit, was supported by sound evidence, nor was it one his relevant experience could allow him to draw. While his testimony is based largely on his knowledge of Meyers' business as a former employee, it is not clear that he has any idea whatsoever how Meyers arrived at rental figures it was willing to pay garage owners. He arrived at his 100% valuation ratio solely on the basis of the profits Meyers made during the period on four other residential garages which he deemed "comparable" to plaintiffs' garage solely because Ms. Goldberg described those four as garages in cooperative or condominium buildings, without regard to any other factors such as locations, age of the leases, etc. (Although there are also vague references to his knowledge of rentals and profits on Meyers' garages beyond these four, it is unsubstantiated.)
Ms. Goldberg explained that the way in which she determined the amount of rent to offer a garage owner for a lease was to "back into it" by deducting the estimated expenses of running the garage from the estimated gross revenues the garage would take in. The resulting figure was termed by her the "remainderment." She would decide what rent to offer by applying a certain percentage generally sought by her for Meyers as a return on its rent investment (the percentage range is part of the evidence under seal), and the difference between the remainderment and that amount would be the rent she would offer. According to her testimony and the other credible evidence, the rent Meyers would have offered in 1985, 1986 and 1987, based upon the Prager revenue and expense figures, would yield damages (prior to crediting payments defendants have made, which will be deducted below) as follows: $ 29,133 for October 9-December 31, 1985;
$ 150,000 for 1986; $ 143,750 for the ten months of 1987. However, I find adjustments should be made as follows.
Based on the testimony of Mort Schwartz, the president of the building's board of directors, if plaintiffs had had control of the garage during the relevant period, they would have staffed it on a 24-hour basis. Therefore, the cost of salary, benefits and payroll taxes for an additional employee should be added to expenses. I accept Mr. Cunning's figures on this, as shown on Schedule 4 to his report, rather than Mr. Prager's. Mr. Cunning claims his are based on the union's applicable wage and benefit rates, an assertion plaintiffs have not challenged. Expenses should also be increased by 6% of the rent to reflect the City's use and occupancy tax which, because payable on commercial leases, was not included in Mr. Prager's analysis. I also find an allocation of $ 2,800 for signage appropriate as an initial one-time cost. Beyond the foregoing, I do not find any of the modifications proposed by either party warranted. Defendants are unpersuasive that costs for insurance and for maintenance and repairs would have been greater than their costs therefor, and plaintiffs are unpersuasive that there is any basis under the circumstances for reducing defendants' costs for office supplies or for maintenance and repairs as proposed in Exhibit 16.
Based on the foregoing, I have taken the "remainderments" shown by Mr. Prager's report and, as rounded off, presented to Ms. Goldberg at trial, and I have determined the percentage profit over rent that Ms. Goldberg's estimated rent represented. I then calculated the amounts of adjustments found warranted above, reduced the Prager remainderments by these adjustments and, using the new remainderments, determined those sums that represent the same percentages of profit as the Goldberg estimated rent for each year (involving a later round of calculations to account for the 6% tax), which, after deduction from the final remainderments, yield what I deem to be the best assessment of fair market value that can be made at this time. The results are as follows: 1965 (prorated): $ 23,107; 1986: $ 120,930; 1987 (prorated): $ 116,615. After deducting the rent actually paid by defendants and their stipulated 1987 payment, the final results, representing the amount defendants are to pay as garage damages, are as follows:
1985: $ 15,235
1986: $ 83,240
1987: $ 39,645
Total: $ 138,120
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